This invention relates generally to valuation methods for financial instruments, and more particularly to analyzing portfolios of financial assets for the purpose of bidding to acquire those assets.
A large number of assets such as loans, e.g., thousands of loans or other financial instruments, sometimes become available for sale due to economic conditions, the planned or unplanned divestiture of assets or as the result of legal remedies. The sale of thousands of commercial assets or other financial instruments sometimes involving the equivalent of billions of dollars in assets must sometimes occur within a calendar month or less. Of course, the seller of assets wants to optimize the value of the portfolio, and will sometimes group the assets in “tranches.” The term “tranche” as used herein is not limited to foreign notes but also includes assets and financial instrument groupings regardless of country or jurisdiction.
Bidders may submit bids on all tranches, or on only some tranches. In order to win a tranche bid, a bidder typically must submit the highest bid for that tranche. In connection with determining a bid amount to submit on a particular tranche, a bidder often will perform due diligence, including engaging underwriters to evaluate judiciously selected assets within a tranche and within the available limited time. In at least some known cases, the remainder of the assets within a tranche are given an estimated underwritten value with the underwritten assets used as a basis.
As a result of this process, a bidder may significantly undervalue a tranche and submit a bid that is not competitive or bid higher than the underwritten value and assume unquantified risk. Since the objective is to win each tranche at a price that enables a bidder to earn a return, losing a tranche due to significant undervaluation of the tranche represents a lost opportunity.
Currently, business enterprises assess an acquisition or sale of assets and portfolios of assets on rapid schedules and often at great distances and varying time zones from the general management teams and functional heads which typically approve the offers for purchase or sale of these assets. Employees, partners and collaborators associated with due diligence regarding the purchase of the assets are typically brought together for a relatively short duration of time to accomplish the due diligence. Typically due diligence activities are conducted in physical proximity to the sources of information associated with the assets. In at least some known cases, the collaborating personnel do not have the benefit of training or knowledge of the complete set of analytical tools at their disposal nor do they have “best practices” from previous efforts of a similar nature.
Consolidation of employees and collaborators into a remote physical location for the duration of the due diligence effort is time consuming and expensive. In addition, persons on due diligence teams rely on a small subset of other personnel who have detailed information about information sources, underwriting, analytical tools, reports, and completed analysis. The subset of individuals who have the information become bottlenecks within a due diligence time line, driving up due diligence costs and adding time that could have otherwise been invested in more value added due diligence.
In summary, there are several factors that typically prevent a substantive analysis on portfolios of financial assets. Some of these factors include incomplete information, limited time to bid date, alternative possible dispositions or resolutions of each asset, expense associated with gathering information, issues related to underwriting and legal, variation of expected assets resolution, uncertain future expenses related to collection on assets, large number of assets in a portfolio and model development for financial analysis.